When Anne Tolley disclaimed responsibility last week for misleading Parliament, blaming her department instead, those with long memories might conclude that we have come a long way from Crichel Down.

Crichel Down was a tract of land that had been compulsorily acquired for the war effort by the British government, on condition that it was returned to the owners when the war was over. After the war, the government broke that promise by retaining the land and leasing it to new tenants. The Minister, Sir Thomas Dugdale, who was personally unaware of the error, resigned when it was discovered because he believed that was required by the doctrine of Ministerial responsibility.

Modern governments seem to recognise no such doctrine. Public servants enjoy so little esteem, so it seems, that they are cheerfully thrown to the wolves when Ministers are asked to take responsibility for mistakes made by their departments.

It isn’t just the former Education Minister who rejects any responsibility for misleading Parliament. The Prime Minister, too, seems remarkably insouciant. His attitude suggests that, whereas it was the Prime Ministerial smile that was the leitmotiv of his first three years, it will be the Prime Ministerial shrug that characterises his second term.

We will see less of the affability he showed while basking in the public approval of his first term, and much more of the somewhat grumpy dismissiveness and impatience that we saw during the election campaign when he came under pressure. The task of an effective opposition, under its new leadership, will be to ensure that there are many more such moments.

David Shearer made a good start in appointing his new front bench. He struck a good balance of old and new, and made effective use of the considerable talent available.

He now has to show what he himself is made of. He won the leadership with the claim that he represents a fresh start, but freshness alone is a rapidly wasting asset and is not enough by itself.

He also has a claim (though it should be made by others rather than himself) that he can match, if not out-do, John Key in the niceness stakes. Indeed, he could re-define niceness to mean more than just a ready smile and a glib answer but rather a genuine concern for all our fellow-citizens, including the most vulnerable and disadvantaged. His own personal record of humanitarian service helps to give substance to that claim.

But what he now has to show is that he has the stuff of which leaders are made. Re-connecting with voters, and listening to what they say and want, is commendable, but leadership is about leading and not just following. We are entitled to expect from our potential leaders a view, if not a vision, as to where the country – and even the world – are or should be heading.

So far, our political leaders have shown no real grasp of the dangers we now face. We cannot expect a John Key government – content as it is to just go along for the ride – to face up to the challenges that confront us. Yet it is now clear that business – or politics – as usual will not cut it.

The last time we faced comparable risks was in the non-nuclear world of the 1930s. World leaders then failed abysmally to deal with the Great Depression. The consequent economic strains were not only disastrous for millions of people, but produced an international climate which led directly to the Second World War.

The risks this time are even greater. Today’s leaders, particularly of what we used to call the West, are repeating the mistakes of the 1930s; it is now virtually certain that the euro-zone’s crisis will drive us into renewed and prolonged recession. This time, though, in a nuclear world, a major international conflict would not have a happy ending – and our self-inflicted economic wounds would in any case leave us in a state of permanent weakness.

We desperately need leaders who can see wider and further than politicians usually do. We need to recognise that the world has changed, that the extreme “free-market” global capitalism that has prevailed for three decades has shown itself to be fundamentally flawed, economically and socially, and now threatens to impoverish and enfeeble us. We need to understand that others, less burdened by this same ideology, are doing much better than we are.

New Zealand, it may be thought, is no more than an observer of this unfolding tragedy. But that is not quite true. We are one of the most credible and at the same time most exposed proponents of Western values and the Western way of life. We have both an interest and a duty to propose the changes that are needed to avoid their destruction.

In the 1930s, our leaders led the world in striking out in a new direction to lead us out of recession. For David Shearer, winning the next election is of course a top priority. But winning elections is not enough. We need far-sighted leadership that will set the country on the right course.

Twenty three years ago, the City was excitedly awaiting the Big Bang – the moment which would usher in a new era of self-regulation of the financial services industry. I had a grandstand view of the impending arrival. The legislation to prepare for the Big Bang was called the Financial Services Bill, and I spent several intense weeks leading for the Opposition as the Bill was taken through its Standing Committee stage.

Mrs Thatcher’s government, in line with its free-market philosophy, was very clear that the City could in essence be trusted to regulate itself. They resisted all attempts to give the regulators some teeth. The next few years of what some called self-regulation but which was in reality a free-for-all saw a huge expansion in financial services, in the size of the institutions providing them, in the sums of money involved, and in the rewards “earned” by those who worked in the City.

For those of us who argued at the time that the “free” market was not infallible, and (in line with Keynes, who had warned that financial markets were peculiarly prone to excess) that the City would require substantial regulation, subsequent events have come as no surprise. Even we, however, could not have foreseen the size of the money-go-round, spinning ever faster, that produced outrageous fortunes for a few and, eventually, crash and ruin for many.

Nor could we imagine that it would be a New Labour government that would become the most enthusiastic cheerleaders for the new lords of the universe. So dazzled were Ministers by the riches generated in the City that they did not think to enquire as to how many of those they claimed to represent actually benefited from the new wealth – wealth largely gouged out of the pockets of the rest of us.

The current revulsion at City excesses – the inflated bonuses, commissions, salaries and perks – is understandable; so, too, the anger at the growing evidence that nothing has changed and that those responsible for the mess will be paid mega-bucks for (allegedly) cleaning it up.

But the reaction to the greed and irresponsibility of the financial free-for-all, while natural, is a diversion from the real point. The reason for the government’s continuing genuflection to the City is that, after 23 years of unregulated City operations, and a growing reliance on financial services to keep the economy moving forward, the collapse of the City means that there is nothing much left.

The game is given away in the Chancellor’s statement this week on his plans for future regulation of financial services. His constant references to the importance of the City to our economy should be seen, not as an endorsement of the course followed over the last 23 years, but as a confession of failure. It is an admission of how far governmental indulgence of City excesses has distorted our economy and how big has been the price that the rest of us have had to pay for the rewards that City operators have milked from that same economy.

The real damage suffered as a consequence of the City’s domination of our economy is not to be measured, in other words, only in terms of the current crash and financial meltdown. The weight given to the City’s interests over a long period has seriously distorted our economic performance – and the more successful the City seemed, the more important its earnings to our national accounts, the more other parts of the economy were allowed to wither away.

The problem is not a new one; it was Winston Churchill who, as Chancellor of the Exchequer, remarked in 1925, “I would rather see Finance less proud and Industry more content.” An excessive attachment to the interests of those who hold and manipulate existing assets, at the expense of those who want to create new wealth, is – after all – a characteristic of mature economies which have substantial assets to protect – and we have been a mature economy for 150 years.

But the era of self-regulation and the demands of the global market meant that this policy bias became magnified many times over. Economic policy as a whole was tailored over this period to serve the City’s interests – so consistently, and over such a long time, that it was no longer recognised as abnormal. There was, we were assured “no alternative”; the global market meant that if the City were not given free rein, others would muscle in on their territory.

So, monetary policy was given centre stage. The policy itself was handed over to bankers, so that it was no longer subject to scrutiny and Ministers were no longer accountable for it, but so that it could be decided for a limited purpose that – arguably – primarily served the purposes of one part only of the wider economy.

Macro-economic policy was largely abandoned. Keynes was dismissed and forgotten. Interest rates were pressed into service to maintain the value of the currency and to underpin financial assets that might otherwise have been regarded as of dubious value. Little or no attention was paid to the competitiveness of the rest of the British economy, so that any thought of following an exchange rate policy that would stimulate exports, employment and investment simply never occurred to our policy-makers; manufacturing in particular was allowed to continue its relentless decline. Most of our economic eggs were placed in the financial services basket and only City operators had access to the golden eggs amongst them.

That is why the global crisis has hit the United Kingdom harder than anywhere else. The financial meltdown has meant that we have nothing much else to fall back on. And that is why the government has gone back – cap in hand – to the authors of the great misfortune, to ask them to dig us out of the hole. There is no better hole to find.

Millions will pay the price of the financial collapse with their jobs, homes and taxes. But many more – and over a much longer period – will suffer in ways that they do not even recognise as a result of the policy priority given to City fat cats whose primary focus remains their own privilege rather than the British economy. Whether through indifference or cowardice, our politicians seem intent on perpetuating a 23 year-old error.

The horror stories keep coming but – even so – it is doubtful whether we have yet grasped in New Zealand the scale and seriousness of what is happening in the global economy, and how greatly we will be affected by it. We know that others are in deep trouble but we see ourselves so far as transfixed spectators rather than actors (or victims) in the drama.

We may not remain in that comfort zone for long. As the world enters recession, and the markets for our goods are decimated, we will feel the pain. And, although our financial system seems unscathed for the moment, the price we will inevitably pay for being one of the world’s most indebted countries is waiting just round the corner. As foreign investors take their money home, and as our banks have to re-negotiate the credit arrangements on which they rely, stand by for a succession of damaging body blows to the already fragile underpinnings of our economy.

There is little sign yet that our political and business leaders have grasped the dreadful vulnerability of our position. The cool reception given to the thoughtful paper issued last week by Mark Weldon and David Skilling – with Peter Dunne expressing concern about the impact on the government’s deficit, as though that was the foremost of our worries – shows that we do not yet recognise the imperatives that have driven governments around the world to take steps that would have been unthinkable just a couple of months ago.

There is of course room for considerable discussion about the precise recommendations of the Weldon/Skilling paper. But it does at least represent the first awareness of the scale of the problem and of the need for new thinking. Even more interestingly, it points the way to a post-meltdown future where the world will (hopefully) never be the same again.

The paper is notable mainly for its (perhaps unconscious) willingness to slaughter some sacred cows to which we have been solemnly assured for nearly three decades “there is no alternative”. Governments must be kept well away from the main levers of economic policy? No. As the paper now asserts (and as even George Bush agrees), government action is essential. Monetary policy is all that matters? No. The paper says that fiscal policy is now the most important weapon in the armoury. Bankers should be entrusted with the important decisions in our economy? No. As is apparent to everyone, banks worldwide have failed us and must in many cases be taken into public ownership. “Free” markets must be left unregulated and will always produce the best results? No. The market has failed and created a catastrophe. All that matters is the bottom line? No. The goals of economic activity are wider than profit for a few.

The truth is, in other words, that if we are to survive the crisis in reasonable shape, we must now abandon the nostrums that have proved so self-destructive. We need governments to acknowledge their responsibilities, to take a major role in the rescuing of our economy, to use a much wider range of policy instruments, and to treat markets as hugely valuable servants but dangerous masters.

We should be in a better position than most to recognise this, since we have given those nostrums a longer and more comprehensive trial than anyone else. While the great super-tankers and luxury liners of the big economies have plied their trade on the great ocean of the global economy, and amassed large fortunes until they suddenly sprang a leak and began to sink, our tiny craft has been waterlogged for years. For us, the dogma of the unregulated “free” market has not led so much to sudden collapse as to long decline.

We now have the chance, if our leaders have the necessary wit and imagination, not only to change direction in order to escape the worst of the world recession in the short term, but to set a new course which will produce in the medium term a better balanced economy in a world where markets are no longer regarded as infallible.

The lesson of this crisis is that unregulated markets lead to economic disaster and – even more importantly – that they are incompatible with democracy. If markets are always right and must not be challenged, the result is not only economic meltdown but government by a handful of greedy oligarchs rather than by elected representatives.

The whole point of democracy is that it ensures that political power will be used to offset the otherwise overwhelming economic power of the big market players. If democratic governments do not, will not or cannot exercise that power to protect their electorates, the course is then set inevitably not only for the crisis we now face but also for the abuses and failures that disfigured our economies in the years preceding the crisis.

Shouldn’t our politicians be called to account? Shouldn’t these issues be what our general election is all about?